NBN power play rolls over states

NBN Co will use federal powers to over-ride state laws to roll out fibre cables on power poles after commercial negotiations broke down with NSW government-owned utility Ausgrid.

In what is believed to be unprecedented use of federal telecommunications law, NBN Co will force Ausgrid to allow the installation of fibre cables on poles in a bid to save money on the $37.4 billion rollout.

The documents, prepared on February 25, mark homes connected to Ausgrid’s electricity distribution network as “high risk due to the fact that NBN Co does not currently have a [facilities access agreement] in place".

NBN Co will force Ausgrid to allow the installation of fibre cables on poles in a bid to save money on the $37.4 billion rollout.
Photo: Rob Homer

Ausgrid and NBN Co both confirmed on Tuesday that the government monopoly would go ahead with the use of the federal powers.

“Commercial negotiations between Ausgrid and NBN for the lease of Ausgrid’s poles for the fibre rollout ended on March 20, 2013, without reaching a satisfactory agreement," an Ausgrid spokesman said. “Since conclusion of the commercial negotiations, Ausgrid has yet to receive any proposed program for the network rollout from NBN or its contractors."

NBN Co will be required only to reimburse Ausgrid for any losses to the utility as a result of the installation, removing any chance of a commercial profit for the NSW company.

One-quarter of rollout to be done overhead

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Most of the NBN is being rolled out underground in ducts and pits leased from
Telstra
. However, about one-quarter of the fibre rollout will be done overhead to reduce costs in areas where the monopoly cannot access Telstra’s infrastructure.

The federal powers could also be used more widely in NSW after interim agreements with two other utilities, Endeavour and Essential Energy, expired earlier this year.

NSW Deputy Premier
Andrew Stoner
last year accused NBN Co of ­trying to scalp $400 million from taxpayers through its negotiations with utilities. He said the money ultimately would have to be recouped by raising power prices.

“To my knowledge it’s never ­happened before," said
George Maltabarow
, the former Ausgrid managing director who oversaw much of the ­discussions.

AFR
AFR

“NSW ratepayers will not get any commercial return on their assets, but worse than that they might actually be in a loss-making situation because they effectively lose control of it."

A spokeswoman for NSW Finance Minister
Greg Pearce
would not comment when asked if the state government would fight
NBN Co
’s move or whether it had received legal advice on the matter.

NBN Co has attempted to sew up commercial agreements with power utilities over the past two years as a core part of the rollout. Agreements are needed in NSW to pass more than 10,000 homes in the state with fibre, by June, or 13 per cent of the company’s promised target of passing 286,000 premises.

Quigley revised down target

NBN Co chief executive
Mike Quigley
has since revised down the target to between 155,000 and 175,000 homes and businesses by that time.

It has secured permanent agreements in some other states, but lack of utility access in NSW has become a potential bottleneck to the rollout. Those close to the discussions say NBN Co had displayed a “combative attitude" in negotiating access to power poles.

Mr Maltabarow said NBN Co’s negotiating stance was surprisingly aggressive and that a key reason power companies were extremely cautious about allowing NBN Co’s equipment onto its poles was that overloading could lead to them falling over and causing major damage.

The maintenance of poles and wires is a sensitive issue for utilities after an electrical pole failure sparked one of the Black Saturday bushfires in Victoria.

“NBN Co didn’t like the fact that we had a view and weren’t just going to roll over and do what they wanted," he said. “It’s a worry to any asset owner, public or private, that they’ve just walked in and basically put impositions to get effective control of their assets."

A senior industry executive close to the rollout said utilities had no “great motivation to talk turkey with NBN unless there’s a lot in it for them because they’re a monopoly".

He argued that contractors building the broadband network, including
Leighton Holding
s and
Transfield
, were relying on NBN Co to strike agreements with the utilities.

New underground pits and ducts considered

“The contractors have committed to [targets] under the assumptions that NBN Co would have those [power pole agreements] signed because you cannot do anything if the utility doesn’t want to help," the source said.

The internal documents show NBN Co also considered replacing rollouts on power poles by digging new underground pits and ducts itself. However, industry experts said it would quadruple the cost and introduce further delays.

“All [regions] in the Ausgrid footprint are being redesigned to eliminate aerial [designs], with the exception of Long Jetty FSAM 02, which NBN Co are reserving as a test case for Schedule 3. The effect on the premises passed is not material," the documents said.

An NBN Co spokesman confirmed the company had conducted “some very limited digging ourselves in NSW" in an area of around 1000 homes and businesses.

“You dig new pits and that’s going to cost more than if you put the equipment on the energy company’s assets," said another construction source intimate with the rollout.

“So if that [fibre serving area module] was going to cost $5 million, it’s now going to cost $20 million."

Another senior industry executive close to the rollout said many of the areas marked for aerial rollout were in remote locations.

“There aren’t enough drills in Australia to do that work and civil construction can be between 40-60 per cent of an FSAM’s cost," the source said.

An NBN Co spokesman said: “We have an obligation to build the network as efficiently and cost-effectively as possible. We have been trying to reach a commercial agreement with Ausgrid for more than 18 months, and have foreshadowed the need to use powers under the Telecommunications Act to gain necessary access."